Don’t Catch A Falling Knife Yield

Don’t Catch A Falling Knife Yield
An Editorial By Phil Anderson · Tuesday August 16th


Whilst many Sydney investors have always accepted a negative cash flow scenario, there was a collective sigh of relief as interest rates were cut yet again to the lowest levels ever witnessed in this country. Investors should be jumping for joy, but with Sydney and Melbourne property yields yet to follow recent property growth higher, local investors are still left trying to catch a falling knife… and here’s why.

CoreLogic recently disclosed that, on average, the Australian national property rental rates were actually falling rather than increasing. Some of
these rental drops were alarming, and perhaps most surprisingly to some, these drops most notably occurred in major capital city markets with Darwin
rents nose-diving 11.5 per cent and Perth rents falling 8.4 per cent over the past 12 months.

Even in the two largest cities in the country, rental yields were finding it difficult to keep pace with general inflation with Melbourne rents rose a meagre 2 per cent, and Sydney just 1.4 per cent, and most loyal local property investors in these markets would tell you that the rental returns in these cities were already, generally speaking, modest at best.

When low rental yields appear in large city markets, it can make the task of maintaining the high costs of servicing an investment an increasingly difficult prospect. Couple this with the recent surge in property prices (predominantly in the Sydney market), and property investors begin to rethink their strategies.


Now more than ever it’s critically important for investors do their homework on a national scale, as deteriorating affordability in more expensive residential property markets paints investors into a vulnerable corner. Despite interest rates being at record lows, the need to have a firm understanding of a location’s vacancies rates, among other criteria, can be the difference between investing success and sleepless nights.

Whilst a negative cash flow expectation from Sydney landlords in particular has become the norm, it certainly does not need to be. Some higher income investors are able to finance their way towards what they believe are cash flow positive properties by forking out large deposits upfront. Anywhere from 10% to 30% of the purchase price, just in an attempt to reduce their holding cost and create a false cash flow positive scenario.

The true test of a ‘cash flow positive’ property is if the holding costs are in fact putting money in your pocket each week based on 100% finance on the property. ”Not possible!”, you say? Well, not only is it possible, you might also be surprised to learn you that you do not have to invest in remote regional locations to find these high yielding properties.




A growing number of informed investors that are currently realising they need to review their investment strategy as adding properties in Sydney and Melbourne becomes simply unaffordable. They are discovering that by selecting high yielding properties in rising growth markets that offer, in many cases, more than double the yield available locally is also a great way to help balance the scales on a negative cash flow portfolio.

To learn more about how we research and identify these markets for our
customers click here now.